Pensioners will receive a flat-rate state pension, initially worth £140 a week for those with a 30-year national insurance record, from 2016, the chancellor has confirmed.

The government says the long-awaited change, which will see the current basic state pension and second state pension (S2P, formerly known as Serps) replaced by a single scheme, will cost no more than the existing state pension system.

This means that while those on low incomes who have made small or no contributions to S2P will benefit from a higher pension than they could currently expect, people who earn higher salaries will lose out. The current full basic state pension is £102.15 a week (rising to £107.45 from April 2012), but those at the top end of the salary scale can expect up to £180 a week in combined pension payments.

The government will publish details in a white paper in spring 2012, with final decisions on the detailed implementation of the policy being taken at the next spending review. But pensions minister Steve Webb has previously said those who have accrued Serps and S2P benefits at the point of implementation of S2P contributions will still benefit from them.

The flat rate pension will only apply to those retiring after implementation: pensioners already receiving the state pension will not move onto the new scheme.

Raj Mody, partner and head of chartered accountants PwC's pensions group said: "True simplification has to be good news for savers and pensioners. Having a simple and clearer idea of what base level of state pension can be expected will be a good starting point for building their further savings on top of that."

Tom McPhail, pensions expert with independent financial adviser Hargreaves Lansdown, said the reforms would significantly reduce dependence on the "inefficient and expensive" system of pension credit and agreed it would make it easier for people to plan their retirement incomes.

But he added: "It also heralds the next major battle between the Treasury and public sector unions. In order to deliver the reform, contracting out for final salary schemes will have to be scrapped. This in turn will lead to an increase in national insurance rates of 1.4% for members of contracted out occupational pension schemes, the vast majority of whom are employed in the public sector."

Dot Gibson, NPC general secretary said: "The proposal to merge the basic and second state pensions into a single £140 a week payment is a classic case of smoke and mirrors – given that someone could retire today and get a combined basic and second state pension of £150 a week.

"In reality there will be no extra money to raise Britain's scandalously low state pension – just a different way of packaging the payment. Not only that but it will also create a two-tier pension system with existing pensioners still having to struggle with a complicated means-tested system that leaves one in four older people in poverty."

The chancellor also announced that an automatic review of the state pension age (SPA) would be introduced to take account of increases in longevity. Details of how this will be done will be published alongside the OBR's fiscal sustainability report.

Insurer MGM Advantage has calculated that the SPA could increase to 69 by 2031, and to 73 if there are further improvements in longevity between 2031 and 2051.

Andrew Tully, the firm's pensions technical director, said: "This should serve as a wake-up call for many people. Today's 33-year-old is likely to need to work until age 73 before they get their state pension. They may have planned to work to age 65, but the reality is likely to be beyond age 70 for many."

The chancellor failed to cut pension contribution tax relief on pensions for higher-rate tax payers – a move that was widely speculated before the budget.

Ian Hammond, managing director of Rowanmoor Pensions, said: "Whilst the chancellor is obviously a man under pressure to raise the government's pot of available cash, he has realised that the future retirement health of the population cannot be put at risk any further and rather than being put off investing in pensions, people need to be encouraged to do so. Osborne has shown he doesn't want to risk rocking the pensions boat any further."